Firm Fined for Separation Agreements that Discourage Whistleblowers
Commentary by Steven Lofchie
A commercial real estate services and investment firm settled SEC charges for using employee separation agreements containing provisions that discourage potential whistleblowers.
The SEC found that the firm required employees to sign a separation agreement acknowledging that the employee had "not filed any complaint or charges against [the firm] . . . with any state or federal court of local, state or federal agency." The SEC stated that the agreement required employees to represent that they had not filed any complaints based on events occurring (i) at any time before termination or (ii) events occurring "between termination and the employee's executing the [General Release Agreement]."
The SEC concluded that the firm's separation agreements violated Exchange Act Rule 21F-17 ("Staff communications with individuals reporting possible securities law violations") by potentially discouraging whistleblowers.
To settle the charges, the firm agreed to (i) cease and desist from further regulatory violations and (ii) pay a civil money penalty of $375,000. The SEC noted that it was not imposing a civil penalty in excess of $375,000 based on the firm's cooperation with the SEC's investigation and its remedial actions.
Commentary
This is the second enforcement action in a couple of weeks against companies that had separation agreements in violation of the whistleblower rules. (See "Tech Company Fined for Separation Agreements that Impede Whistleblowers.") Accordingly, employers should review their employee separation agreements.